AM markets: grains revive as looming data test bears’ nerves

February 25, 2016 at 12:44 pm

Welcome to a big data day for ag investors.

While external markets had another shocker by Shanghai shares to assess, with stocks there shedding 6.4%, while oil prices reversed a bit in early deals too, ag investors have other matters to worry about – jitters ahead of which have been a key factor in depressing grain futures so far this week.

In South Africa, the Crop Estimates Committee will unveil revised forecasts for the country’s drought-hit summer crops, which traders believe will show a downgrade, to 6.87m tonnes, in the estimate, from the previous figure of 7.44m tonnes.

And this when there are some large figures still going around on the amount of grain imports that southern Africa will need, with Tobin Gorey at Commonwealth Bank of Australia quoting an estimate from non-for-profit group Agri SA of “up to 9m tonnes of corn in 2016″.

“That is around 7% of the US Department of Agriculture’s current forecast for global corn imports,” Mr Gorey added.

July white maize futures extended a gentle rally this week, adding 1.3% to 4,969 rand a tonne as of 08:35 UK time (02:35 Chicago time).

Data later

Also on the agenda are the monthly report from the International Grains Council, and a monthly report from Argentina’s farm ministry on domestic crops, which may throw more light on the extent of corn sowings and indeed on the quality of the wheat harvest – both of which factors are somewhat in the spotlight.

And then there are the weekly USDA estimates for US export sales to await, which are expected for wheat to come in at 200,000-400,000 tonnes, old crop and new combined, compared with 253,648 tonnes the week before.

For soybeans, US export sales last week are forecast by traders at 300,000-700,000 tonnes, compared with 567,030 tonnes last time.

And for corn, sales are expected at 700,000-1.2m tonnes, compared with 1.05m tonnes last time.

Extra sowings

But the data most-anticipated among grain investors are the USDA’s forecasts for domestic crop sowings this year, as released to the department’s annual outlook forum, and which represent the first really considered view of area prospects.

With approaching 3m acres lost from US winter wheat area, gains are expected in figures for other crops.

The corn sowings figure, for instance, is forecast at 89.648m acres, up from the 87.999m acres actually planted last year.

For soybeans, the USDA is expected to release a figure of 83.302m acres, up from last year’s 82.650m acres, while for cotton, the seedings forecast is pegged at 9.339m acres, up from 8.581m acres.

All-wheat area, including spring sowings, is pegged at 52.411m acres, compared with 54.644m acres last year.

‘A little bit more supportive’

The prospect of the extra area, and the extra crop supplies that implies, has been a weight on crop prices this week, helping drive Chicago soft red winter wheat futures to their lowest levels since June 2010, on a spot contract basis.

However, with the data now so close, some investors took the opportunity to lock in profits on short positions rather than risk losing all should the statistics turn out somewhat bullish.

In wheat, the spot March contract added 0.6% to $4.45 ј a bushel, while the better-traded May lot gained 0.7% to $4.54 Ѕ a bushel.

“No threatening cold or warm weather is expected in US crop areas over the next two weeks.”

Wheat markets got a boost on the demand side by a further tender by Gasc, grain authority for top wheat importer Egypt, although US supplies of course look unlikely to win, looking uncompetitive with, for example, French supplies, to judge by futures price.

In the lst session, “the May Paris-Kansas City premium narrowed to just $2 a tonne, a level not seen since 2015 harvest,” said CBA’s Tobin Gorey.

‘Bullish data’

With pressure on wheat easing, corn moved out of the shadows too to gain 0.5% to $3.66 ј a bushel for the best-traded May contract.

After all, the grain in the last session fell despite US ethanol production data which Mr Reilly termed “bullish” for the grain, in showing a jump of 19,000 barrels a day to 994,000 barrels in output last week.

“Year-to-date ethanol production is running 2.7% above the same period a year ago,” he said, adding that “implied annualised corn use to make ethanol is near its record”.

Palm up

Meanwhile, soybeans for May gained 0.2% to $8.74 a bushel, helped by soyoil, which added 0.5% to 31.35 cents a pound for May, if failing in an earlier attempt to break above its 20-day moving average at 31.41 cents a pound.

Soyoil was in turn leant a hand by rival vegetable oil palm oil, which broke its losing streak, adding 1.0% to 2,544 ringgit a tonne in Kuala Lumpur.

Data from cargo surveyor ITS was not so encouraging, in showing Malaysian exports down 14.8% month on month for February so far.

Still, with futures down for five successive sessions already, some bearish news has been factored in.

‘Upside potential’

In New York, meanwhile, cotton for May added 0.1% to 57.46 cents a pound for May delivery, after a four-day losing streak which has taken prices to their lowest since 2009, on a nearest-but-one contract basis.

“We continue to see much more upside potential for the old crop [futures]than we do downside risk,” said Louis Rose at the Rose Report.

“If and when we see the May contract trade to the 65.00 cents-a-pound level, however, this relationship will be reversed, and that would be a fine time to let someone else own your cotton.”